When doing a comparative analysis of a banks's lending for low to mod areas. Are you compared only to those banks the same size you are or to all reporting institutions in your assessment area?

All reporting banks within your assessment area.

While Wells Fargo might not be your peer, they do provide lending in your area (most likely) and their impact verses yours is of value to discern.

The examiners look at market penetration rates of all reporting lenders as Dawnie has said. However, sometimes these averages can be skewed by large lenders. It is helpful to have the details compiled for each reporting lender to determine if this kind of bias has influenced the results. The more information you have the more you can understand your performance and the benchmarks against which you are being compared. Since these are the standards used to rate your performance, it really is imperative that you know and understand them. We have created special computer programs that allow us to extract all the reported market data and simultaneously compute the market rank and market share of all reporting lenders in the market. This allows for a thorough analysis of the market reported activity. We have seen situations where the lender we were analyzing had below market penetration in the LMI geographies, but was ranked in the top 10 (out of more than 100 reporting lenders) in terms of loans originated in those tracts. It really impresses an examiner when you known and understand the dynamics of your market. Don't be passive about the data used to evaluate your performance. Be proactive - get the data, study it and determine what it tells you about your comparative performance. This will help your compliance performance and can help your bank improve its own marketing success because you will have a better understanding of your market.

The answer to the question is a little complicated as the question really asks about 2 different parts of a CRA exam. In one part, we determine if a bank has an adequate level of lending. In the small bank CRA exam, the loan-to-deposit ratio is used as a proxy for this as opposed to the gobs of CRA data the large banks are required to capture for us. In looking at the volume of lending, we will look to see how that volume compares with other lenders in the AA. The point of this is to answer the central question, "Does the bank lend?" If volumes are low and we conclude the bank doesn't lend, and the reasons for the low volumes are internal rather than external, then this can be, and has been, a fatal flaw in a CRA exam, leading to a less than Satisfactory rating. In that case, the other performance criteria are rendered moot.

If the bank lends, we go on to the other parts of the CRA exam, one of which is an analysis of the bank's geographic distribution, i.e., how much lending is in low-, mod-, mid- and upper-income census tracts. In this part, the bank's lending is compared not to that of other banks, but to the demographics of the assessment area. In other words, we calculate the percentage of your lending in low income tracts, and compare that to the percentage that low-income tracts represent of all tracts in the AA. We make similar comparisons for the other 3 income levels. So, that's how we do it. AR.

AR - if I might ask, what might be some scenarios where if a bank doesn't lend that it would be due to something internal as opposed to external?

I'll give you one from a bank I visited to help out on an upcoming CRA exam. Bank was operating under an MOA. The five lenders were fired, and senior management was in the process of cleaning up a huge amount of errors before the bank was shut down. This caused them to back off on their lending due to an internal issue (the MOA and the resulting loss of staff from the investigation).

The neglected to mention this until day two At which point I mentioned that their CRA exam was the least of their worries

Shannon
If the bank makes a Policy decision to only make commercial loans and not consumer loans or vice versa it could effect the number and amount of loans it originates. If it sets rates at the higher end of the local market, or has fees and charges other don't have, or has a credit criteria that is restrictive. It could be as simple as saying we only lend 30% of wholesale on a used car, or any such requirement. Maybe they are making some killer investments and are paying more attention to that side of the house than the lending side.

There are some institutions that call themselves "Private Banks" and only cater to the elete.

Obviously, all this opens other doors to bigger Fair Lending issues, but any such restrictions can decrease the amount of lending activity and its because of an internal decision.

Shannon: An example of an internal factor that is within the control of the bank would be a bank's lending policy. We've seen a few lending policies that would be considered overly restrictive by anyone's standards. We corroborate this through our community community contacts, which typcially finger the bank, without any prompting from us or naming of the bank by us, as not being a player in the community.

An external factor that may be beyond the bank's control would be the AA's demographics. We've seen some small banks with loan-to-deposit ratios as low as 30%, yet we considered that to be an ok level of lending. Why? Because the AA's population was predominantly elderly and didn't have lending needs. So the bank was flush with deposits with no where to lend the money. This is how we try to put a bank's CRA performance into context. AR.

Thank you AR and everyone else! Our first CRA exam in 6 years (and our first as a large bank) is in 2 weeks. Light a candle for me!